Niels-Erik Lund began his passenger ship career in 1969 as a trainee in a Danish passenger shipping company, DFDS. In the nearly 50 years since, the passenger and cruise shipping industry has changed many times over, with consistent growth being the only similarity between then an now. Today Lund, President & CEO of Sunstone Ships, Inc., has an unfettered view of the expedition cruise sector that he helped to create. With the expedition and luxury cruise segments set for fast growth, Maritime Reporter spoke to Lund to help put the market in better perspective.
I’ve covered the maritime industry since 1992; your tenure extends even further. When you look at the cruise industry today, from your perspective please give a ‘state of the market’.
The cruise industry as we know it today started in the late 1960’s with Knut Kloster and Ted Arison forming Norwegian Cruise Lines. Since then, there has not been one year in the industry where the number of passengers have dropped. Cruising has become a mass market vacation, an amazing value for money. Based on this I do not foresee any reduction in capacity or occupancy in the years to come.
I understand that you have more than four decades experience in this sector. How did it all start?
I began my passenger ship career as a trainee in a Danish passenger shipping company, DFDS, Copenhagen which was formed in 1866 mainly operating ferries, but also had a few cruise operations. When I started in 1969, it was a quite large company with approximately one hundred vessels, 52 subsidiaries worldwide and operating both cargo and passenger services.
DFDS formed a cruise company in Miami, Scandinavian World Cruises, which began operating in 1982. Unfortunately the company was not very successful, and as Director Finance in Copenhagen, I was asked to go to Miami as President of the company, and to either turn it around or close it down. We managed to turn the company around and three years later it was sold. In 1988 I founded International Shipping Partners as a passengership management company.
ISP grew from having one ship on management, to becoming one of the largest passenger ship managers in the 1990’s with more than 20 ships. In 2004 the company changed strategy to concentrate on the expedition market, not only as technical managers, but also hotel managers, and to become involved in the acquisition of vessels for investors, and take on the commercial management of the ships, being responsible for purchasing, chartering and selling the fleet.
In 2012 the technical and hotel management segments of ISP were sold to a German private equity firm, Waterland, and only the “owned” fleet and the commercial management were retained and moved into the existing company, SunStone Ships, Miami.
SunStone Ships is a pure commercial manager with the responsibility of buying, chartering and selling of the 11 ships in the fleet.
In 2015 the owners of the SunStone fleet repurchased the technical management operation from Waterland and formed the passengership management company, Cruise Management International (CMI), as well as the hotel management company, changing the name to CMI Leisure (CMIL). The technical, hotel and commercial management companies were back in a group of associated companies, all operating out of the same facilities in Miami.
Looking at the industry since you started to today, how has it changed most?
The industry in which SunStone operates is concentrated within the expedition market which has developed quite a lot since the company acquired its first ship in 2004. At that time there were approximately 45 vessels in the segment we describe as the expedition cruise market, which are fully ocean-going SOLAS approved vessels with a capacity between 50-250 passengers based on double occupancy. The fleet was then very old, very fragmented with no large owners, operators or managers.
The number of vessels have decreased since a number of ships have been scrapped; some have been replaced by the conversion of secondhand vessels, themselves old ships, so the worldwide fleet today has an average age in excess of 25 years.
The expedition market has expanded drastically over the last five years, and quite a number of owners and operators have ordered new tonnage which will come into place from 2019 forward, with newbuildings being ordered from Norway, Germany, Spain, Croatia and China.
From a historic point of view, there has never been so many newbuildings on order for the expedition segment. However, it is not expected that any more secondhand vessels will be converted into expedition ships, and the worldwide fleet is very old on average and should be scrapped within the next 10-12 years. Newbuildings are clearly needed as the market is expanding.
We can read the description online, but for the uninitiated, please give a concise description SunStone.
SunStone Ships is a pure commercial management company, managing passenger ships only, and mostly smaller vessels (100-250 passengers). SunStone’s associated companies have the technical management of the fleet as well as the hotel management of most of the SunStone ships. Based on this SunStone can provide the tonnage to the travel/cruise companies with all operational aspects included. For the expedition market SunStone is a one-stop-shop. With the existing fleet SunStone is the largest tonnage provider to the expedition market. The Miami office is a total of 55 employees, and there are more than 1000 officers and crew.
A decade ago the ‘cruise’ story was mammoth ships … one bigger than the other, packed with modern and increasingly complex entertainment options. But the small oceangoing luxury expedition vessel sector has enjoyed a strong growth. Why?
We are quite positive about the market for small luxury expedition vessels, as we see this segment continue to grow. There are a number of reasons. If you look at the existing cruise markets such as the U.S. and Europe, more people are retiring younger, with more available time and money. Older people are more active than they were years ago.
Also, people who have done all the ‘normal’ cruising such as the Caribbean, Mediterranean, Baltic and the Far East, now want to see the more remote areas of the world, which is where the small expedition ships come into play. People are very interested in the Polar Regions such as Far East Russia, Arctic Canada, Greenland, Iceland, Spitsbergen and Antarctica, and we also see more travelers wanting to go on warm water expeditions in areas such as Australia, Borneo, Polynesia, Philippines, Galapagos, Amazon River, etc.
In addition to the older cruise demographics, there are completely new segments, the largest being the Chinese passengers, where five years ago, there were basically no Chinese passengers onboard our ships; today it is the second largest nationality. The Chinese market is expanding dramatically in all aspects of cruising. Culturally the Chinese like to travel in large groups and therefore they often charter the entire vessel with 100-250 passengers. We expect to see this market grow even further, as well as the emergence of new nationalities, for example India, into this market segment.
Do you have any plans to revamp your fleet?
For a number of years SunStone has been working on a newbuilding program to replace the existing fleet of 10 expedition vessels, as well as to expand the capacity. For years work was done on ‘Projected Unlimited,’ where a 200-passenger vessel was designed for both cold and warm water cruising. However, mainly for pricing reasons, the project was reworked into a slightly smaller vessel and more specifically suited for either cold or warm water operation, even if it could still do both. This design is now called the INFINITY series of ships, with the first vessel now under construction in China with a delivery in September 2019. The first vessel has been chartered out to Aurora Cruises, Australia, and has been named the M/V Greg Mortimer.
Technically speaking, what is special about the new vessels?
The new vessels have quite a number of features not existing on the current expedition fleet. First, the design is primarily focused on safety, comfort and green operation. From a safety point of view, INFINITY has Safe Return to Port, Polar Code 6, Ice Class 1A, and fulfill all the newest SOLAS regulations as well as all known SOLAS regulations coming into effect in the future. From a comfort point of view, the vessels have zero speed stabilizers, X-bow and dynamic positioning, and is an all-balcony suite ship, with much more public space per passenger than most of the existing expedition fleet.
The vessels will be equipped with a diesel/electric system with Tier III engines, the most environmentally friendly engines in today’s market, as long the vessels are operating on Marine Gas Oil. In our opinion, based on the very remote areas of operation, as well as the need for long-range, from a practical point of view, there are no alternatives than the best possible diesel engines.
There are some owners talking about having battery-powered ships with the ability to operate 10-20 minutes on batteries; however, in our opinion, this is still too short a period of time to make any difference and do not believe that the battery power is fully developed enough at this time to be practical for expedition vessels.
Looking at the actual ship/maritime operations, what technology/technologies do you see as the most influential in helping you to grow your business?
The expedition market is mainly about destinations; getting to very remote destinations in a safe and comfortable way. In today’s market there are no other ways than with small cruise vessels, and we do not foresee this changing in the next 10 to 12 years. These remote areas will be protected from mass tourism as well as from infrastructure building, therefore small, environmentally friendly vessels with small Zodiacs or other landing crafts will be the way of the future to see these parts of the Antarctic, the Arctic, or small uninhabited islands in Polynesia, Micronesia or many of the reefs and islands worldwide.
Looking at the business today, what do you consider to be the biggest challenges to running a profitable, efficient cruise operation today?
From a cost point of view, some of the challenges in operating small ships are the need for a fleet of vessels to have an efficient operation. Having one or two ships makes it almost impossible to have an in-house operation as the cost of the shore-based organization, insurances, lack of purchasing power, and the inability to find officers and crew, makes for a complicated and costly operation. There will also be challenges in the future to find officers with qualification to sail in these regions, as in many areas, an Ice Master is required, or officers with separate pilot licenses; and with the expanded fleet, and more companies coming into this market segment, there will be a need for the constant education and training of new officers to operate in these remote areas. It is also becoming a challenge to provide a high quality hotel product, as this requires having large storage capabilities onboard, as there are cruises of up to 20 days where provisioning is impossible. Companies have to be very creative with menus and a good hotel crew to minimize waste and that even with a small ship with reduced storage and galley spaces, a five-star product can still be delivered.
Sunstone Rebuilds Expedition Fleet
In May 2017 Sunstone Ships and China Merchants Industry Holdings (CMIH) signed a Framework Agreement for the construction of four expedition vessels with options for six more.
CMIH entered into an agreement with Ulstein Design & Solutions, which will supply the vessel’s design and equipment package,and construction supervision. Mäkinen, Finland, will establish a cabin assembly plant and interior workshop at the shipyard’s facilities. The hotel design of our new fleet will be done by Tomas Tillberg Design International. The project was brought together by Tillberg & Reyes Group Co. Ltd., who acted as broker.
Passenger cabins: 80-95
Speed: 15 knots
Class: Ice Classed 1A
Polar Code: PC 6
Classification Society: Bureau Veritas